EEOC, BofA, Ebix, Zimbabwe, BNY Mellon, Munis: Compliance

Aug. 7 (Bloomberg) -- The U.S. Equal Employment Opportunity
Commission must pay $4.6 million in attorneys’ fees and expenses
to CRST, an Iowa trucking company, because of a sexual
harassment and discrimination suit that was thrown out.

The award, considered to be the biggest of its kind in an
EEOC case, is a “rare occurrence,” according to Gerald L.
Maatman, Jr., an employment lawyer at Seyfarth Shaw LLP who
isn’t involved in the case. “You read decisions every day, but
this is stunning in terms of its significance,” he said
yesterday in a phone interview.

The EEOC originally sued the trucking company in 2007
claiming that its female employees were subject to sexual
harassment and a hostile work environment.

Almost one year later, the agency still hadn’t identified
the total number of individuals in the class. In a series of
rulings in 2009, Linda R. Reade, the chief judge of the U.S.
District Court for the Northern District of Iowa, dismissed the
EEOC claims asserting a “pattern or practice” of harassment
and ultimately barred the agency from “pursuing relief on
behalf of all 255 allegedly aggrieved individuals the EEOC had
identified.”

The court at the time also held that the EEOC had “wholly
abandoned its statutory duties” because it failed to
investigate some of the individual claims until after it had
filed its complaint.’’

While the U.S. Court of Appeals for the Eighth Circuit had
upheld part of her decision, the appellate court remanded the
case to adjudicate two of the individual claims.

On remand, the court reiterated that the potential class
action couldn’t survive. Because CRST was the prevailing party,
it was entitled to attorneys’ fees and expenses.

Maatman said that “the test to award fees against the
government is quite high. The fact that the judge said CRST had
proved its right to fees, shows that the EEOC should never have
brought this case.”

CRST was represented by Jenner & Block LLP. While the court
included most of the hours worked in determining the fee, it
didn’t, however, use Jenner’s actual rates to calculate the fee
award.

Instead, said John H. Mathias, Jr., the lead attorney from
Jenner, “The rates were local Cedar Rapids rates. They happen
to be about half what our actual rates in Chicago were.”

Mathias said in an e-mail that in the fee petition, “we
asked for fees based upon local rates, as this was consistent
with what the judge ruled in granting our first fee petition.”

The EEOC said it hasn’t decided whether it will appeal.
EEOC spokeswoman Christine Nazer said in an e-mail that “we are
deeply disappointed in the decision and are considering next
steps.”

Compliance Action

Bank of America Sued by U.S. Over Mortgage Securitization

Bank of America Corp., the second-biggest U.S. lender, was
sued by the Justice Department over allegations that it lied to
investors about the riskiness of the loans backing a 2008
mortgage deal.

The Charlotte, North Carolina-based bank misled investors
about the loans in a securitization of more than $850 million in
residential mortgage-backed securities, the Justice Department
said yesterday in a statement on the civil claims. The
Securities and Exchange Commission filed a parallel case
yesterday at federal court in North Carolina.

“As we proceed with this case, and pursue additional
investigations, we will continue to use every tool, resource and
appropriate authority to ensure stability, accountability and --
above all -- justice for those who have been victimized,”
Attorney General Eric Holder said yesterday in the statement.

The Justice Department estimated that investors in the
securitization deal would sustain losses that would exceed more
than $100 million.

“These were prime mortgages sold to sophisticated
investors who had ample access to the underlying data,” said
Bill Halldin, a Bank of America spokesman, in an e-mail
statement. “The loans in this pool performed better than loans
with similar characteristics originated and securitized at the
same time by other financial institutions.”

Bank of America, led by Chief Executive Officer Brian T.
Moynihan, has spent more than $45 billion on litigation,
settlements and refunds to investors as part of the fallout from
the 2008 credit crisis and the purchases of Countrywide
Financial Corp. and Merrill Lynch & Co.

The bank said last week it had received subpoenas and
information requests regarding mortgage securities and
collateralized debt obligations created during the housing boom.

UBS to Pay $50 Million to Settle SEC Claim of Misleading CDO

UBS AG, Switzerland’s largest bank, will pay almost $50
million to settle U.S. regulatory claims that a brokerage unit
improperly retained millions of dollars of upfront cash it
received while acquiring collateral for a financial product.

The Zurich-based bank’s UBS Securities unit failed to tell
investors in 2007 that it was keeping $23.6 million in payments
rather than transferring it to the collateralized debt
obligation, the Securities and Exchange Commission said in an
administrative order that was filed yesterday.

The upfront payments “under the terms of the deal should
have gone to the CDO for the benefit of its investors,” George
S. Canellos, co-director of the SEC enforcement unit, said in a
statement. “UBS misrepresented the nature of the CDO’s
collateral and rendered false the disclosures about how that
collateral was acquired.”

The settlement comes as the SEC wraps up its investigation
of conduct and financial products that helped fuel the financial
market turmoil of 2008. Probes of how banks including Goldman
Sachs Group Inc. and JPMorgan Chase & Co. structured and sold
CDOs linked to souring mortgages were the centerpiece of the
agency’s investigation of the credit crisis.

In mid-2007, UBS structured the CDO known as ACA ABS
2007-2, the collateral for which was primarily credit default
swaps on subprime residential mortgage-backed securities, the
SEC said. Instead of passing the upfront payments to the CDO as
was standard industry practice, UBS retained them as an extra
fee, according to the order.

In the settlement, UBS agreed to disgorge the $23.6 million
in upfront payments and the disclosed fee of about $10.8
million, as well as paying prejudgment interest of approximately
$9.7 million and a $5.7 million penalty, the SEC said. The
company agreed to settle the agency’s claims without admitting
or denying wrongdoing.

“UBS is pleased to put this investigation behind us, which
involved a legacy business that was closed almost five years
ago,” Megan Stinson, a UBS spokeswoman, said in an e-mail. “We
believe this settlement marks the conclusion of all SEC
investigations relating to UBS’s structuring and marketing of
CDOs backed by residential mortgage-backed securities.”

Ebix Said to Face U.S. Review for Possible Money Laundering

Federal investigators are reviewing Ebix Inc.’s cross-border financial transactions to see whether the Atlanta-based
software company engaged in money laundering, according to three
people with knowledge of the matter.

As reported by Bloomberg’s Greg Farrell, the focus on the
company’s wire transfers around the globe follows the June
disclosure by Ebix that the U.S. Attorney’s Office in Atlanta
had begun an investigation into “allegations of intentional
misconduct.”

The U.S. Attorney’s investigation upended a plan by Ebix
Chief Executive Officer Robin Raina to take the company private.
Ebix, which sells management software to insurance companies,
had proposed a $820-million deal financed by Goldman Sachs Group
Inc. In May, Ebix had disclosed that the U.S. Securities and
Exchange Commission was investigating its accounting practices.

Tim Lynch, a spokesman for Ebix who works for the
communications firm Joele Frank, said any allegations of money
laundering are “false, inaccurate and likely to cause
significant financial harm to Ebix shareholders.”

Robert Page, a spokesman for the U.S. Attorney’s office in
Atlanta, declined to comment, as did Judith Burns, an SEC
spokeswoman.

One of the people familiar with the probe is a former Ebix
executive who was contacted by FBI agents. Federal Bureau of
Investigation agents asked him about the company’s wiring of
funds to operations in locations such as India, Sweden and
Singapore, the person said.

For more, click here.

U.S. Charges Two Men With Illegal Lobbying for Robert Mugabe

President Robert Mugabe of Zimbabwe allegedly hired two
Chicago men to lobby U.S. officials to lift economic sanctions
against him in violation of federal law, according to a criminal
complaint unsealed yesterday.

In exchange for those services rendered in 2008 and 2009,
the men were to be paid $3.4 million, acting Chicago U.S.
Attorney Gary S. Shapiro said in a statement yesterday.

While Mugabe wasn’t charged, Prince Asiel Ben Israel, 72,
and C. Gregory Turner, 71, were accused of violating the
International Emergency Economic Powers Act. Ben Israel appeared
yesterday before U.S. Magistrate Judge Arlander Keys in Chicago,
who released him on $4,500 bond. A warrant has been issued for
Turner’s arrest.

“Ben Israel and Turner allegedly agreed to engage in
public relations, political consulting and lobbying to have
sanctions removed by meeting with and attempting to persuade
U.S. federal and state government officials” to oppose them,
Shapiro said.

Mugabe has led the southern African nation since 1980 and
was re-elected last week. Challenger Morgan Tsvangirai, who was
credited with winning 34 percent of the July 31 vote, has
disputed the result. The U.S. has called the election “deeply
flawed.”

Sanctions against Mugabe and other Zimbabweans were imposed
in 2003 by U.S. President George W. Bush, a Republican, and were
continued under President Barack Obama, a Democrat.

While the sanctions do not ban travel to the nation or
prohibit public officials from meeting with “specially
designated nationals,” they do prohibit lobbying, public
relations and media consulting services for the Zimbabweans.

The case is U.S. v. Ben Israel, U.S. District Court,
Northern District of Illinois (Chicago).

SAC Insider Trading Investigation Ongoing, Bharara Says

The U.S. probe of SAC Capital Advisors LP and its founder
Steven A. Cohen is “ongoing” and the indictment of the fund
addresses “pervasive” criminal conduct there, Manhattan U.S.
Attorney Preet Bharara said.

SAC Capital was indicted July 25 in what Bharara called an
unprecedented, decade-long insider trading scheme that helped
the Stamford, Connecticut-based fund earn hundreds of millions
of dollars in illicit profits. Prosecutors cited separate
alleged insider-trading schemes by at least eight current and
former fund managers and analysts.

In an interview yesterday on “CBS This Morning,”
television news program host Charlie Rose asked Bharara if his
office didn’t have enough evidence to charge Cohen.

“As I said when we announced the charges, the
investigation is ongoing, it is not closed,” Bharara said.
“And at this point, we indicted the hedge fund as I said, at
the time that we announced the case, because of the degree and
nature and scope of the misconduct that had gone on there for a
number of years as laid out in great detail.”

While Cohen, 57, wasn’t charged, prosecutors described him
in the indictment as “the fund owner” and said he
“encouraged” SAC employees to obtain trading information from
company insiders while ignoring indications that it was illegal.
Bharara’s office also filed a related money-laundering suit
against the fund on July 25. Cohen has denied any wrongdoing.

The cases are U.S. v. SAC Capital Advisors LP, 13-cr-00541
and U.S. v. SAC Capital Advisors LP, 13-cv-05182, both U.S.
District Court, Southern District of New York (Manhattan).

Libor Settlements Said to Ease CFTC’s Path in Rate-Swaps Probe

The $2.5 billion of settlements reached in the London
interbank offered rate rigging scandal are compelling banks to
hand over information in the probe of a separate financial
benchmark tied to interest-rate derivatives.

Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc,
the lenders fined in the Libor case, risk criminal prosecution
in the U.S. under the settlement agreements if they’re seen as
withholding evidence related to potential manipulation of the
benchmark known as ISDAfix, according to a person with knowledge
of the matter, who asked not to be identified because details of
the investigation aren’t public.

“Those banks have to cooperate at the risk of blowing
whatever agreements they have,” Peter Henning, a Wayne State
University law professor in Detroit and a former U.S. Justice
Department prosecutor, said in a telephone interview.

The Justice Department deferred prosecution against the
three banks as part of the Libor-rigging settlements and the
Commodity Futures Trading Commission, the primary investigator
in the ISDAfix probe, will keep it “apprised of what’s going
on,” Henning said. Barclays has turned over recorded telephone
calls of its traders to the CFTC, Bloomberg News reported last
week.

Kerrie Cohen, a spokeswoman for Barclays, declined to
comment, as did Megan Stinson at UBS and Ed Canaday at RBS.
Steve Adamske, a spokesman for the CFTC in Washington, also
declined to comment.

Regulators are probing manipulation of key financial gauges
in world markets on everything from interest rates to currencies
to commodities.

In their five-year settlement agreements with the CFTC,
Barclays, RBS, and UBS said they would “cooperate fully and
expeditiously with the commission” and any other governmental
agency related to Libor or “any investigation, civil
litigation, or administrative matter related to the subject
matter of this action or any current or future commission
investigation.”

U.S. investigators used such sweeping language to aid
probes of other benchmarks, Henning said.

For more, click here.

Compliance Policy

Muni-Bond Regulator Considers Broker Rules on Customers’ Trades

The regulator of the $3.7 trillion U.S. municipal-bond
market is considering rules on brokerage firms to ensure
investors receive fair prices when buying and selling state and
local government bonds.

The Municipal Securities Rulemaking Board, the Alexandria,
Virginia-based agency that oversees the market, yesterday
solicited comments on whether to impose stricter guidelines on
how brokers set prices when trading with customers.

If the rules are changed, they would be similar to those
that apply to trading in corporate bond and equity markets. The
Securities and Exchange Commission recommended such a change
last year, saying the lack of standards in the municipal market
may give investors the impression they aren’t receiving the best
prices possible.

The request for comment is an initial step toward
developing a new regulation, which would be drafted once
investors and brokers weigh in. The board would need to approve
a new rule, along with the SEC.

In the Courts

BNY Mellon Must Face New York Fraud Case on Currency Trades

Bank of New York Mellon Corp. must face a lawsuit by the
New York Attorney General that accuses the world’s largest
custody bank of defrauding clients in foreign-exchange
transactions.

Justice Marcy Friedman of New York state Supreme Court in
in Manhattan ruled fraud claims brought by the state Attorney
General Eric Schneiderman can proceed, according to a decision
dated Aug. 5.

BNY Mellon was sued in 2011 by Schneiderman, who accused
the bank of a 10-year fraud through the pricing of foreign-exchange transactions for private and government clients.

Manhattan U.S. Attorney Preet Bharara also has a lawsuit
pending against the bank over the same issue, claiming it
defrauded clients of more than $1.5 billion, according to court
papers.

Friedman dismissed some claims at issue in the state case,
including those for violations of state and city false claims
laws.

“We continue to believe the remaining claims are
unwarranted, and we will vigorously defend against them,” BNY
Mellon spokesman Kevin Heine said in a statement.

Melissa Grace, a spokeswoman for Schneiderman, declined to
immediately comment on the judge’s ruling.

The case is People of the State of New York v. Bank of New
York Mellon Corp., 114735-2009, New York state Supreme Court
(Manhattan).

Wells Fargo Program Didn’t Cheat Investors, Lawyer Says

Wells Fargo & Co. didn’t withhold material information
about its securities-lending program from institutional
investors and isn’t liable for any losses, a lawyer for the bank
said at the end of a trial.

Blue Cross Blue Shield of Minnesota and 11 other plaintiffs
sued Wells Fargo in 2011, alleging the company marketed a risky
program as safe and cost investors millions of dollars. Wells
Fargo has denied misleading the investors and blamed any losses
on the financial crisis.

“Nothing Wells Fargo did or did not do harmed investors in
this case,” Bart Williams, an attorney for the bank, said in
closing arguments yesterday in federal court in St. Paul,
Minnesota. “You can find yourself in a position, as Wells Fargo
did, where all of a sudden your securities are illiquid, you
can’t sell them.”

Wells Fargo misrepresented the risk and breached its
fiduciary duty to the institutional investors, causing $8.2
million in losses, Mike Ciresi, an attorney for the plaintiffs,
said in his closing argument yesterday.

“These are nonprofits who have missions and $8 million is
an enormous loss,” he said. Wells Fargo “put its own interest
ahead of the plaintiffs,” Ciresi said.

The jury is set to begin deliberating today. A separate
phase on punitive damages will follow if the jury finds against
Wells Fargo on the claims of breach of fiduciary duty, fraud or
deceptive trade practices.

The case is Blue Cross Blue Shield of Minnesota v. Wells
Fargo Bank, 11-cv-02529, U.S. District Court, District of
Minnesota (St. Paul).